Godrej Consumer Products Ltd’s (GCPL) domestic soap business finally appears to be getting back on track. During the March quarter, sales rose by about 13% year-on-year (y-o-y), bettering the 6% growth achieved in the December quarter.
Some of this is due to the base effect, since growth in the year-ago quarter was lower. Also, the firm had raised prices in the past two quarters to compensate for rising palm oil prices. That has also kicked in, aiding revenue growth. Its market share has fallen to 9.7% compared with 10% in the December quarter.
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Apart from soaps, home care is another key segment in the domestic market, and has done well in the March quarter. Sales have risen by 17% y-o-y, and its market share has risen by 270 basis points over the December quarter. One basis point is one-hundredth of a percentage point.
Sales of hair colours had risen by only 9% in the December quarter, which has improved to 18% now. Its domestic portfolio appears to be in a more robust shape; though the soap business did have a base effect behind it, if it can sustain this growth for some more quarters, it would be a positive factor.
But margins are under pressure; its stand-alone results show a drop of five percentage points in operating profit margins. The company has said margins in the soap business will be lower, since raw material prices were low in the year-ago period.
Its international business saw sales rise fourfold y-o-y to Rs 347 crore, chiefly driven by acquisitions. Megasari, an Indonesian acquisition, is the main driver, with about Rs 195 crore in revenue, up from Rs 185 crore in the December quarter. Its Ebitda (earnings before interest, tax, depreciation and amortization) margins were steady at 20%.
GCPL’s African business saw revenue drop sequentially, though it maintained Ebitda at the same level, which the company attributed to slowing economic growth and competition. Latin American market sales were flat, but profitability improved.
The company’s overall operating profit margins fell by about three percentage points, lower than the fall in its domestic business margins. Its international business helped shore up margins during the quarter, due to its growing share in the overall revenue.
Though its sales doubled, lower profitability, higher interest costs and depreciation led to profit growing by about 54%. That is still good growth, which explains why GCPL’s share price rose by about 4.5% on Monday. But when the effects of its acquisitions wear off after some quarters, it will be back to core growth. Unless the company makes a few more acquisitions, that is, choosing to continue on the inorganic growth path.
Graphic by Yogesh Kumar/Mint
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